Good Morning Traders,
As of this writing 5 AM EST, heres what we see:
US Dollar: Sept USD is Up at 95.775.
Energies: Aug '19 Crude is Up at 58.88.
Financials: The Sept 30 year bond is Down 11 ticks and trading at 155.18.
Indices: The Sept S&P 500 emini ES contract is 16 ticks Higher and trading at 2926.00.
Gold: The Aug Gold contract is trading Down at 1413.30. Gold is 52 ticks Lower than its close.
This is not a correlated market. The dollar is Up+ and Crude is Up+ which is not normal and the 30 year Bond is trading Lower. The Financials should always correlate with the US dollar such that if the dollar is lower then bonds should follow and vice-versa. The S&P is Lower and Crude is trading Higher which is correlated. Gold is trading Lower which is correlated with the US dollar trading Up. I tend to believe that Gold has an inverse relationship with the US Dollar as when the US Dollar is down, Gold tends to rise in value and vice-versa. Think of it as a seesaw, when one is up the other should be down. I point this out to you to make you aware that when we don't have a correlated market, it means something is wrong. As traders you need to be aware of this and proceed with your eyes wide open.
Asia traded Mixed with half the exchanges trading Higher and the other half Lower. Currently Europe is trading Mixed as well.
Possible Challenges To Traders Today
- Core Durable Goods Orders m/m is out at 8:30 AM EST. This is major.
- Durable Goods Orders m/m is out at 8:30 AM EST. Major.
- Goods Trade Balanceis out at 8:30 AM EST. This is major.
- Prelim Wholesale Inventories m/mis out at 8:30 AM EST. This is major.
- Crude Oil Inventoriesis out at 10:30 AM EST. Major.
We've elected to switch gears a bit and show correlation between the 30 year bond (ZB) and The YM futures contract. The YM contract is the DJIA and the purpose is to show reverse correlation between the two instruments. Remember it's liken to a seesaw, when up goes up the other should go down and vice versa.
Yesterday the ZB made a major move at around 8 AM EST. The ZB hit a Low at around that time and the YM hit a High. If you look at the charts below ZB gave a signal at around 8 AM EST and the YM was moving Lower at the same time. Look at the charts below and you'll see a pattern for both assets. ZB hit a Low at around 8 AM and the YM was moving Lower at the same time. These charts represent the newest version of MultiCharts and I've changed the timeframe to a 15 minute chart to display better. This represented a Long opportunity on the 30 year bond, as a trader you could have netted about a dozen ticks per contract on this trade. Each tick is worth $31.25. Please note: the front month for both the ZB and YM contract is now September, 2019 and I've changed the format to Renko bars such that it may be more apparent and visible.
Charts Courtesy of MultiCharts built on an AMP platform Click on an image to enlarge it.
|ZB - September, 2019 - 6/25/19 |
|YM Sept 2019- 6/25/19 |
Yesterday our bias was to the Downside as the USD, Gold and the Bonds were all trading Higher yesterday morning this usually means a Downside day. The markets didn't disappoint as the Dow dropped 179 points and the other indices dropped as well. Today we aren't dealing with a correlated market and our bias is to the Upside.
Could this change? Of Course. Remember anything can happen in a volatile market.
Yesterday morning we saw the indices clearly in a downward pattern. Just about every instrument that we use for correlation purposes was pointed Higher and that does not bode well for an upside day. The markets didn't disappoint as the Dow dropped 179 points and the other indices dropped as well. In other economic news yesterday just about every report showed weakness except the HPI which measures home price values, other than that just about every other report didn't show strength. Today we have Durable Goods and Core Durable Goods, both of which are major.
On Thursday, April 5th (of last year) we had the honor and privilege to be interviewed by David Lincoln on his You Tube channel. David is a floor trader for the options markets. If you listen to this interview, you will enjoy it. To view the interview go to:
Just so you understand, Market Correlation is Market Direction. It attempts to determine the market direction for that day and it does so by using a unique set of tools. In fact TradersLog published an article on this subject that can be viewed at: http://www.traderslog.com/market-correlation-is-market-direction/
As readers are probably aware I don't trade equities. While we're on this discussion, let's define what is meant by a good earnings report. A company must exceed their prior quarter's earnings per share and must provide excellent forward guidance. Any falloff between earning per share or forward guidance will not bode well for the company's shares. This is one of the reasons I don't trade equities but prefer futures. There is no earnings reports with futures and we don't have to be concerned about lawsuits, scandals, malfeasance, etc. Anytime the market isn't correlated it's giving you a clue that something isn't right and you should proceed with caution. Today our bias is to the Upside. Could this change? Of course. In a volatile market anything can happen. We'll have to monitor and see.
As I write this the crude markets are Higher and the S&P is Higher. This is not normal. Crude and the markets are now reverse correlated such that when the markets are rising, crude drops and vice-versa. Yesterday Aug crude dropped to a low of $57.55. It would appear at the present time that crude has support at $57.00 a barrel and resistance at $59.00. Remember that crude is the only commodity that is reflected immediately at the gas pump. Please note that the front month for crude is now August. Last month OPEC met once again to cut production but the price of crude is starting to climb. The question is if whether this is temporary or something more permanent.
If trading crude today consider doing so after 10:30 AM EST when the inventory numbers are released and the markets give us better direction.
Crude Oil Is Trading Higher
Crude oil is trading Higher and the S&P is Higher. This is not normal. Crude typically makes 3 major moves (long or short) during the course of any trading day: around 9 AM EST, 11 AM EST and 2 PM EST when the crude market closes. If crude makes major moves around those time frames, then this would suggest normal trending, if not it would suggest that something is not quite right. As always watch and monitor your order flow as anything can happen in this market. This is why monitoring order flow in today's market is crucial. We as traders are faced with numerous challenges that we didn't have a few short years ago. High Frequency Trading is one of them. I'm not an advocate of scalping however in a market as volatile as this scalping is an alternative to trend trading. Remember that without knowledge of order flow we as traders are risking our hard earned capital and the Smart Money will have no issue taking it from us. Regardless of whatever platform you use for trading purposes you need to make sure it's monitoring order flow. To fully capitalize on this newsletter it is important that the reader understand how the various market correlate. More on this in subsequent editions